02 September 2011

Creating Jobs We Don't Need

The trouble with economic stimulus packages is that they improve the labor market to a great extent for people who have the easiest time finding jobs or already have them, rather than the people who most badly need jobs.

[W]e have a larger sum of money chasing the same set of well-qualified, easily-employable workers. . . . only 42 percent of the job offers went to the unemployed. . . . (It’s actually worse than that because it is 42 percent of the job offers and may well be less than 42 percent of the revenue, most likely so if you think of the unemployed as bringing lower wage offers.) That’s less than thirty percent of the initial expenditure being spent on unemployed labor[.] . . . when times are tight employers are often quite relieved when workers leave the firm voluntarily. It eases their cash flow, prevents a firing, and everyone is happy, sort of. Bad times are precisely when replacements of these workers do not happen. . . . So the claim that an ARRA hire of an already-employed worker led to a replacement for that worker at the original firm is not so strong. . . . Very often when the replacement does happen, the replacement is drawn from the pool of workers who are doing well. Some of those workers will be unemployed. But they are the unemployed who least need the help. Their average search time goes down, and that is somewhat of a social gain, but it is hardly the goal of a fiscal stimulus program. We’ve failed very badly at reemploying the hard-core unemployed and that is borne out by other numbers.

Once again, it seems like the most efficient way to provide unemployment stimulus is to simply guarantee a low wage job to anyone who is willing to take it, and then to use the pool of workers that arises to do whatever is out there needing to be done, without much regard to whether or not the value of the work done justifies the cost. A program like that is cheaper in terms of dollars per job created less unemployment insurance payments avoided than almost any other alternative. Stimulus programs create less new payroll than the amount spend, in practice, rather than having a multiplier effect. This also addresses the fact that being outstide the workforce for a prolonged period, in and of itself, makes a person less employable.